A look ahead: Sacramento’s auto-selling industry

Last in a three-part series of conversations with local experts on the Sacramento region’s road to recovery. As California continues climbing out of the recession, we look at three sectors vital to the Sacramento region: development, real estate and autos. Today’s interviews are with three longtime Sacramento-area auto dealership executives.

The recession hit the Sacramento-area auto-selling industry like a ton of bricks.

Between April 2008 and June 2009, more than a dozen area dealerships closed doors, creating hundreds of job losses, millions in lost sales tax revenue and millions more in evaporated advertising dollars.

Today, things are much improved, but local auto executives say they’ve had to change with the times: stocking more hybrid and electric vehicles, hiring more tech-savvy salespersons and technicians, and strongly emphasizing customer service in a competitive marketplace.

In today’s conclusion of a three-part series of conversations with local experts discussing the Sacramento region’s road to recovery, we asked three longtime automotive executives to offer their views of what lies ahead.

Here’s an excerpt from Sacramento Bee staff writer Mark Glover’s interviews with John Driebe, who sells Nissan, Infiniti and Mazda vehicles in the Elk Grove Automall and heads the ForAnyAuto Group; Rick Niello, president of the Sacramento-based Niello Co., which oversees more than a dozen mostly high-end dealerships in Northern California; and David Rodgers, senior vice president and general manager of the John L. Sullivan Automotive Group, which includes John L. Sullivan Chevrolet and Roseville Toyota in the Roseville Automall.

How do you deal with the cyclical nature of the auto-selling business, which is subject to big swings in the economy?

Driebe: We have been very fortunate in 11 years in Elk Grove to enjoy nine good years and only two really rough ones. During the very lean years, we brought our team together and asked that everyone help with the difficulties by taking a small, temporary pay reduction. Although no one was happy about this, it allowed us to minimize the overall staff reductions, keep our team together and make it through those unexpected, very difficult times.

Niello: The downturn (in late 2007) was one that we had never seen before. With the banks stopping all lending, that was an element we hadn’t seen before. I think we all learned a lot from that. Downturns give (dealers) an opportunity to analyze inventory, make sure it’s current and that you’re invested in your fast-moving cars. The next thing we look at – because the automobile business has become very people-intensive, the cars really take care of themselves – is building relationships. People are the focus and our relationship with them. Our employees know this. We employ about 650 people, so that really takes up most of my focus and that of the management company.

Rodgers: For us, it’s just staying nimble, adjusting to the different markets as they change and adjusting to the economy. When the economy is down, we do have a tendency to shift resources to our lower-priced cars. We know people budget carefully during those times, and that’s (when) we can adjust to what’s going on.

How big a part does service play in your business, and have you made efforts to build that sector of your overall operations?

Driebe:There is a saying in the automobile business: We sell cars for future parts and service opportunities. Our dealerships have always had some of the highest service (and) client retention for their respective brands. That means more of our clients return to us for service than they do at most dealerships. … Service is a very big part of our business.

Niello: Our service business is probably the most important element in our arsenal in terms of customer relationships and customer retention. When we sell the car, that’s just the first part of our relationship. That customer is going to be living in our service driveway, hopefully not that often, for the next three or four years. Generally, spending time for service feels negative, so we want to create a very positive experience. And let’s face it, with many of our high-end customers, they have an expectation (similar) to what they have with other retailers, like Nieman Marcus, Tiffany and Nordstrom. Many of our customers might own several of the cars sold at our dealerships – a Porsche and an Audi and a Volkswagen maybe. If they have a bad experience in one store, they tend to indict the entire Niello Co., so we can’t afford to let anybody leave our dealership if they’re not totally satisfied. Customer service is key to our business, and it’s more than servicing our customers’ cars. It’s about developing a good relationship.

Rodgers:With the addition of the ToyotaCare maintenance policies (two-year or 25,000-mile service on new car purchases), we’ve had to ramp up with more technicians. ... Now, customers come to the dealership for things that they typically did not do in the past (routine oil changes, for example). But that makes it a lot easier on us to make an impression on (customers) when they do visit, and it leads to other purchases down the road. So, yes, service is very important to us and our relationship with our customers.

Does your hiring process involve an increased emphasis on younger, tech-savvy individuals, given the huge shift to online research/shopping for cars by consumers in recent years?

Driebe: The majority of our sales professionals are young, energetic, tech-savvy, empathetic young men and women. We prefer to hire people with no car experience and teach them to do business our way. Each of our new team members is carefully selected, then put through extensive training to ensure that when our guests visit we are prepared to exceed their expectations. Yes, some of this is driven by the online aspect of our business, but mostly it is driven by us wanting every one of our team members doing things … the right way.

Niello: Our technicians today in virtually all our cars spend less time in their toolbox and more time on their laptop. We also believe that the service experience and the technology are things we like to show off. We like to have the customer waiting room set up with a huge window that looks right into the service area. All our technicians know that the customers can see them as well. We’re very proud of the visuals in the service department. The technology is moving rapidly, and training is a very large part of our budget. Keeping the technicians trained in the new technology is going on all the time. We have what we call “BMW geniuses,” a little grandiose, but it does describe them … they familiarize customers with all the technology. (When) people take delivery of a vehicle, even it has been only two or three years between vehicles, it’s a quantum leap in technology. Basically, today’s car is a laptop with wheels. So, we like to spend quality time with the customer when they take delivery of the car.

Rodgers: It’s a generation shift, with techs coming out of school today who work on cars and computers together – where 10, 15 or 20 years ago that wasn’t the case. Our experience is that young technicians are extremely tech-savvy, so we try to reach out to colleges and tech schools for those who want to make a career out of it. It’s definitely a major shift, and it applies to sales as well. So much sales stuff now is done online, which is where a lot of people are comfortable.

Describe the dealership of 20 years from now: Will most of the cars on lots be electrics or hybrids? Will salespersons rely on high-tech virtual-reality showrooms to sell cars? Will some of the paper-driven functions of registration and warranties be handled exclusively via digital devices?

Driebe: In the 1990s, as the Internet started to gain popularity, many people predicted that the traditional car dealer would already be gone. Obviously, that has not happened. However, the next 20 years will bring significant change. The vast majority of cars will be sold at a one price (with) no negotiation model; facilities will get smaller as cars require less maintenance and become even more reliable than they are today. Electric, hybrid, hydrogen and some type of advanced drivetrains will be found in everything we sell. Cars will be available for dealers to order in days vs. weeks, and therefore, dealers will stock a much smaller sample of vehicles. 3-D or computer-generated (images on giant video screens) will allow a client to see exactly what their new vehicle will look like in their driveway or with a custom accessory package. Today, we are already using digital devices to become more efficient with the paperwork, and this will continue to improve, if various government agencies permit innovation to happen.

Niello: I think the one huge constant that every manufacturer aspires to is customer retention, a laser-like focus between the auto retailer and the customer. We can’t afford to have anything that’s not positive, or helpful. We do know that the Internet takes a little bit of the relationship out of the game, but we think Internet time is mostly for research and pricing, not relationship building. Yes, there are many changes on the way, especially in engines – electricity, hydrogen, gas, diesel, hybrid. We know about Tesla and its success in the upper end of the market, and Audi is coming out with a full range of electrics. We need infrastructure to keep up with the technological evolution of the car, but I think that’s coming. I believe that electronic technology will force the cost of in-car technology down, much like we saw with high-definition TVs as that technology became more common. Branding of cars will become even more important. The stronger the brand, the more powerful the position in the marketplace. And I think that brick-and-mortar buildings will remain a bigger part of our business, because that’s how you sell and service a big object like a car.

Rodgers: Everything is changing and evolving so quickly. In the case of Toyota, with a high percentage of hybrids, we’re seeing an increase in electric vehicles. We’re getting to the point where that also is going to change … we’re going to be seeing more hydrogen fuel cell vehicles. I don’t think anything is going to be burning gas in 15 years. Long-term, I see hydrogen fuel cell vehicles as the most fuel-efficient, and I think that’s where we’re heading.